U.S. ag could gain or lose as Panama expansion delayed

The first major expansion of the Panama Canal was to be completed in 2014 in time for the canal’s centennial but the project now is on hold.
Seventeen percent of world grain shipments pass through the Panama Canal and 90 percent of them are from the United States.

Stewart Truelsen, American Farm Bureau | Mar 26, 2014

The first major expansion of the Panama Canal was expected to be completed this year in time for the canal’s centennial. Officially, the new date is December 2015. Unofficially, it may be much later.

Almost all work on the canal was suspended at the beginning of the year with the exception of some excavation. Enormous Caterpillar trucks still scurried back and forth hauling spoil, but giant cranes, costing $40 million each, were not moving. Only four of the new gates, 10-stories tall, are in Panama. A total of 16 are needed. They come from Italy and won’t all arrive until the end of the year.

U.S. agriculture has a big stake in the eventual outcome. According to the U.S. Agriculture Department, 17 percent of world grain shipments pass through the Panama Canal and 90 percent of them are from the United States. An analysis by Rabobank forecasts a 12 percent drop in the cost of transporting grain from the Corn Belt to Asia when the new locks are in use. This will make U.S. grain more competitive with Brazil, Argentina and grain-exporting countries in Eastern Europe.

The canal expansion could cause other changes in shipping agricultural products. In recent years, more grain, oilseeds and grain products have been loaded on containerships. This trend could accelerate with Post-Panamax ships. At the same time, the expansion could boost Gulf and East Coast ports that have been losing business to the Pacific Northwest.

This is the dry season in Panama. In a month or so the rainy season will take hold and make work more difficult. What happened? Simply put, contractors ran out of money. Critics contend that the $5.25 billion project to build a third set of locks was seriously underbid. The contractors are a consortium from Spain, Italy, Belgium and Panama. The debt crisis in Europe undoubtedly contributed to their problems. An agreement to resume work, however, was reached in late February.

The 51-mile canal connects the Atlantic Ocean to the Pacific Ocean via the Caribbean Sea. The largest vessels that can fit through the lock chambers are known as Panamax ships. Their capacity is measured in “twenty-foot equivalent units” or TEUs. Each TEU is roughly the volume of a standard 20-foot container. Panamax ships carry up to 5,000 TEUs. Post-Panamax ships are much longer and wider and have a capacity of 13,000 TEUs. Tonnage through the expanded canal will not increase all at once but should double by 2025.

The Panama Canal route is so important to world trade that China claims to have reached a $40 billion deal with Nicaragua to build a longer canal through that nation to accommodate even larger ships.